ACIT 12(2), MUMBAI V. SATISHCHANDRA MAKHARIA, MUMBAI

ITA 5051/MUM/2012

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1102 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 8 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 31-03-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 07-08-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VISHWAS MUNDHE
• Assessee Lawyers: DR K SHIVARAM; NEELAM C JADHAV
• Keywords: Sale consideration of property below Jantri Value; Business income; Transactions in derivatives
• Section: 143(3); 50C; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E MUMBAI BEFORE SHRI JOGINDER SINGH (JUDICIAL MEMBER) AND SHRI N.K. PRADHAN (ACCOUNTANT MEMBER) ITA NO. 5051/MUM/2012 ASSESSMENT YEAR: 2008-09 ACIT 12(2) VS. SHRI SATISHCHANDRA MAKHARIA ROOM NO. 134 MAKHARIA HOUSE, 4 TH FLOOR, AAYAKAR BHAVAN, M.K. RD. 327, SARDAR PATEL ROAD MUMBAI 400020 MUMBAI - 400004 PAN NO. AAHPM1611J (APPELLANT) (RESPONDENT) REVENUE BY : MR. VISHWAS MUNDHE, DR ASSESSEE BY: DR. K. SHIVARAM & NEELAM C JADHAV, AR DATE OF HEARING : 14/02 /2017 DATE OF PRONOUNCEMENT: 28/04/2017 ORDER PER N.K. PRADHAN, AM THIS IS AN APPEAL FILED BY THE REVENUE. THE RELEVAN T ASSESSMENT YEAR IS 2008-09. THE APPEAL IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER (APPEALS) 23, MUMBAI AND ARISES OUT OF THE ORDER U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT). 2. THE 1 ST , 2 ND , 3 RD & 4 TH GROUND RAISED BY THE REVENUE IN THIS APPEAL ADDRESS A COMMON ISSUE. THEY READ AS UNDER: 1. THE LD CIT(A) HAS ERRED IN APPRECIATING THE FACT TH AT THE CAPITAL GAIN EARNED ON THE SALE OF THE PLOT AT MIDC , NASHIK IS TO BE ASSESSED IN THE HANDS OF THE FIRM IN WHICH TH E ASSESSEE WAS A PARTNER AND NOT IN THE HANDS OF THE ASSESSEE AS AN INDIVIDUAL, WHEN THE ASSESSEE HAD ALREADY RETIRED F ROM THE SAID FIRM IN THE YEAR 2002. ITA NO. 5051/MUM/2012 2 2. THE LD CIT(A) HAS ERRED IN APPRECIATING THE FACT TH AT THE CAPITAL GAIN EARNED ON THE SALE OF THE PLOT AT MIDC, NASHIK IS TO BE ASSESSED IN THE HANDS OF THE FIRM IN WHICH THE ASSE SSEE WAS A PARTNER AND NOT IN THE HANDS OF THE ASSESSEE AS AN INDIVIDUAL WHEN AS PER THE RETIREMENT DEED OF THE FIRM M/S. MA HARASHTRA WIRE DRAWING CO. DATED 14.08.2002, THE ASSESSEE HAD RETIRED FROM THE SAID FIRM AND IN LIEU WAS GIVEN THE PLOT U NDER CONSIDERATION LOCATED AT MIDC, NASHIK, AS PART OF S ETTLEMENT OF THE FIRM BY THE FIRM. 3. THE LD. CIT(A) HAS ERRED IN HOLDING THAT SINCE THER E IS NO RECORD OF THE PLOT EVER HAVING BEEN REGISTERED TO THE APPELLANT/TRANSFERRED TO THE APPELLANT IN THE RECOR DS OF MIDC, SINCE MIDC DID NOT APPROVE TRANSFER TO AN INDIVIDUA L, WITHOUT APPRECIATING THAT THE TRANSFER OF THE SAID PLOT IN 2002, BY VIRTUE OF RETIREMENT DEED OF THE FIRM, FROM FIRM TO THE RE TIRING PARTNER IS SQUARELY COVERED WITHIN THE AMBIT OF TRANSFER AS PER PROVISIONS OF SECTION 2(47) OF THE IT ACT, 1961 AND IS NOT COVERED BY ANY OF THE TRANSACTIONS NOT REGARDED AS TRANSFER AS PER PROVISIONS OF SECTION 47 OF THE IT ACT, 1961. 4. THE LD. CIT(A) HAS ERRED IN APPRECIATING THE FAC T THAT AS PER THE NINTH ANNUAL REPORT FOR THE YEAR ENDED 31.03.2006 O F SHREE SHYAM PROCESSORS PVT. LTD. (THE TRANSFEREE TO WHOM THE PLOT WAS SOLD), THE COMPANY ACQUIRED THE PLOT OF LAND AT MID C SATPUR, NASHIK AND THAT IT WAS ACQUIRED FROM THE DIRECTOR A ND MAJORITY SHAREHOLDER, SHRI S.B. MAKHARIA, WHO RECEIVED IT ON RETIREMENT FROM A FIRM IN WHICH HE WAS A PARTNER, IN FULL SATI SFACTION OF HIS CLAIMS AT A VALUE OF RS. 2,00,000/- AND THAT THE SA ME HAS BEEN TRANSFERRED TO THE NAME OF THE COMPANY. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE FILED HIS RETURN OF INCOME FOR THE A.Y. 2008-09 ON 21.05.2008 DECLARING TOTAL INCOME OF RS. 22,67,533/-. DURING THE COURSE OF ASS ESSMENT PROCEEDINGS, THE ASSESSING OFFICER (A.O.) FOUND FRO M THE AIR INFORMATION THAT THE ASSESSEE HAD SOLD IMMOVABLE PR OPERTY VALUED AT RS. 98,97,000/- AND THE DEED WAS REGISTERED IN THE OFFICE OF JOINT SUB- REGISTRAR, NASHIK. THE ASSESSEE SUBMITTED A COPY OF THE SAID DEED BEFORE THE A.O. THE DEED WAS FOR TRANSFER OF PLOT N O. D 92, MIDC SATPUR, NASHIK INDUSTRIAL AREA. VIDE THIS ASSIGNMEN T DEED, THE SAID ITA NO. 5051/MUM/2012 3 PLOT WAS TRANSFERRED TO THE COMPANY M/S. SHREE SHYA M PROCESSORS PVT. LTD. (SSPPL). THE STAMP DUTY VALUATION OF THE PROPERTY WAS RS. 98,97,000/- WHEREAS THE ASSESSEE HAD SHOWN SALE CON SIDERATION OF RS. 2,00,000/-. FROM THE SUBMISSION MADE BY THE ASS ESSEE, THE A.O. NOTED THAT THE ASSESSEE HAD RECEIVED THE SAID PLOT BY VIRTUE OF RETIREMENT DEED DATED 14.08.2002. THE SAID PLOT WAS CLAIMED TO BE TRANSFERRED TO THE COMPANY M/S. SSPPL SOMEWHERE IN THE YEAR 2004. THE ASSESSEE STATED BEFORE THE A.O. THAT A DEED OF ASSIGNMENT BETWEEN THE ASSESSEE AND M/S. SSPPL OUGHT TO HAVE B EEN EXECUTED AT THAT TIME. HOWEVER, THIS WAS NOT DONE DUE TO STAMP DUTY AND COST ISSUES AND THEREFORE, THE PLOT REMAINED IN THE HAND S OF THE ASSESSEE. THE SAID PLOT WAS ASSIGNED VIDE DEED OF ASSIGNMENT DATED 15.07.2007 TO THE COMPANY M/S. SSPPL FOR A CONSIDERATION OF RS . 2,00,000/-. THE STAMP DUTY VALUATION OF THE SAID PLOT WAS RS. 98,97 ,000/-. THE A.O. TOOK (I) THE VALUE OF THE SAID PLOT AS RS. 98,97,00 0/- AS PER THE PROVISIONS OF SECTION 50C AND (II) THE COST OF ACQ UISITION AS RS. 2,00,000/- AND COMPUTED THE CAPITAL GAINS ACCORDING LY. 4. AGGRIEVED BY THE ORDER OF THE A.O., THE ASSESSEE FILED AN APPEAL BEFORE THE LEARNED CIT(A). THE LEARNED CIT(A) ALLOW ED THE APPEAL OF THE ASSESSEE IN RESPECT OF THE ABOVE GROUNDS OF APP EAL ON THE REASONS THAT (I) THERE WAS NO TRANSFER AT ALL OF LEASE OF P LOT DURING THE PREVIOUS YEAR 2007-08 RELEVANT TO THE A.Y. 2008-09, (II) THE DEED OF ASSIGNMENT WAS ENTERED INTO BETWEEN THE FIRM AND THE COMPANY, (III) THE CAPITAL GAINS, IF ANY, WOULD BE TAXABLE IN THE HANDS OF THE FIRM AND NOT THE ASSESSEE AS AN INDIVIDUAL. THEREFORE THE LEARNED CI T(A) HAS HELD THAT THE CAPITAL GAINS CANNOT BE TAXED IN THE HANDS OF T HE ASSESSEE AS HE IS NOT A PARTY TO THE TRANSFER EXCEPT THAT HE HAS SIGN ED THE DEED OF ASSIGNMENT AS PARTNER OF THE FIRM WHICH HAS TRANSFE RRED THE PROPERTY. ITA NO. 5051/MUM/2012 4 5. BEFORE US, THE LEARNED DR RELIES ON THE ORDER OF THE A.O., WHEREAS THE LEARNED COUNSEL OF THE ASSESSEE SUPPORT S THE ORDER PASSED BY THE LEARNED CIT(A). 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. WE FIND THAT THE ASSESSEE WAS H AVING 50% SHARE IN THE PARTNERSHIP FIRM MAHARASHTRA WIRE DRAWING CO MPANY (MWDC). THE FIRM MWDC HAD ACQUIRED 2 PLOT OF LAND O N LEASE OF MIDC LAND OVER A PERIOD ON WHICH ITS PRODUCTION ACT IVITY WAS CARRIED OUT. IN THE YEAR 1992, THE PRODUCTION ACTIVITY WAS STOPPED DUE TO CHANGE IN MARKET CONDITIONS. IN 2000, THE MIDC INSI STED TO CARRY OUT THE PRODUCTION ACTIVITY OR RETURN THE PLOT OF LAND. IT WAS DECIDED THAT THE ASSESSEE RETIRES FROM THE FIRM MWDC AND IN LIEU OF HIS SHARE OF CAPITAL (RS. 2,00,000/-), THE ONE PLOT OF LAND IS T O BE TRANSFERRED TO THE ASSESSEE VIDE RETIREMENT DEED DATED 14.08.2002. AS PER MIDC POLICY, THE PLOT CANNOT BE TRANSFERRED IN INDIVIDUAL NAME. THEREFORE, THE FIRM MWDC AGREED TO TRANSFER THE PLOT IN FAVOUR OF THE C OMPANY M/S. SSPPL WHEREIN THE ASSESSEE WAS A MAJORITY SHAREHOLD ER IN LIEU OF ASSESSEES SHARE CAPITAL OF RS. 2,00,000/- PAYABLE AT THE TIME OF RETIREMENT. ACCORDINGLY, THE COMPANY M/S. SSPPL BRO UGHT THE LAND IN THE BOOKS OF ACCOUNTS AND REFLECTED IT AS FIXED ASS ETS AND CREDITED RS. 2,00,000/- TO LOAN ACCOUNT OF THE ASSESSEE IN THE B OOKS OF THE COMPANY AND PAID TRANSFER FEES AND INCIDENTAL EXPEN SES OF RS. 4,52,435/- ON 24.06.2004 TO MIDC. SUBSEQUENT TO THA T, MIDC HAD GIVEN CONSENT TO TRANSFER THE LAND IN THE NAME OF T HE COMPANY M/S. SSPPL FROM THE FIRM MWDC VIDE LETTER DATED 20.06.20 05. THE COMPANY M/S. SSPPL ACCOUNTS SHOWED LAND HAS BEEN A CQUIRED FROM THE ASSESSEE FOR RS. 2,00,000/- IN 2004-05. ADVANCE PAID FOR LAND OF RS. 6,52,435/- WAS CATEGORISED UNDER FIXED ASSET. A DVANCE INCLUDED TRANSFER FEES OF RS. 4,10,200/-, LAND VALUE OF RS. 2,00,000/- AND ITA NO. 5051/MUM/2012 5 INCIDENTAL EXPENSES OF RS. 42,235/-. THE SAME WAS A LSO REPORTED IN THE DIRECTORS REPORT AND NOTES TO THE ACCOUNT FOR THE YEAR ENDED 31.03.2005. THE COMPANY M/S. SSPPL AGREED TO PURCHA SE THE LAND FROM THE FIRM MWDC AND TOOK OVER THE FIRMS LIABILI TY TOWARDS RETIRING PARTNER. THE FIRM SETTLED THE RETIRING PAR TNERS DUES BY DEBITING ITS CAPITAL ACCOUNT AND CREDITING TO ITS A SSETS (PLOT) AS SALE PROCEED. MR. M.K. SANTOSH HEGDE, DIRECTOR OF M/S. S SPPL LODGED PAPERS WITH MIDC. AND MIDC INFORMED THAT UNTIL AND UNLESS THE DEED OF ASSIGNMENT IS EXECUTED, THE PLOT CANNOT BE REGIS TERED IN THE NAME OF THE COMPANY. THE DEED OF ASSIGNMENT DATED 15.07. 2007 WAS EXECUTED BETWEEN THE FIRM MWDC (REPRESENTED BY THE 3 PARTNERS) AND THE COMPANY M/S. SSPPL REPRESENTED BY THE THIRD PARTY AS A PROCEDURAL REQUIREMENT TO RECORD THE LEASE LAND IN THE NAME OF THE COMPANY M/S. SSPPL. IT IS FOUND THAT MIDC HAD ALRE ADY GIVEN ITS CONSENT TO TRANSFER THE LAND IN THE NAME OF THE COM PANY M/S. SSPPL IN JUNE 2005. 6.1 WE FIND THAT THE PRESENT DEED OF ASSIGNMENT IS BETWEEN THE FIRM MWDC (ASSIGNOR) AS REPRESENTED THROUGH ITS 3 P ARTNERS INCLUDING THE ASSESSEE, AND COMPANY M/S. SSPPL (ASS IGNEE) THROUGH ITS DIRECTOR SHRI SANTOSH S HEGDE. SINCE THERE IS N O RECORD OF THE PLOT EVER HAVING BEEN REGISTERED TO THE ASSESSEE / TRANS FERRED TO THE ASSESSEE IN THE RECORD OF MIDC AND SINCE MIDC DID N OT APPROVE TRANSFER TO AN INDIVIDUAL, ULTIMATELY THE TRANSFER IS BETWEEN THE FIRM MWDC AND COMPANY M/S. SSPPL. THUS THERE IS MERIT IN THE ORDER OF THE LEARNED CIT(A) THAT CAPITAL GAINS, IF ANY WOULD BE TAXABLE IN THE HANDS OF THE FIRM MWDC AND NOT THE ASSESSEE AS AN I NDIVIDUAL. THE ASSESSEE HAS SIGNED THE DEED OF ASSIGNMENT ONLY AS A PARTNER SIGNING ON BEHALF OF THE FIRM MWDC. ITA NO. 5051/MUM/2012 6 IN SHIN SATELLITE PUBLIC CO. LTD. VS. JAIN STUDIOS LTD . (2006) 2 (SC) 628 (PARA 16), THE HONBLE SUPREME COURT HAS HELD THAT A COURT WILL READ THE AGREEMENT AS IT IS AND CANNOT REWRITE OR C REATE A NEW ONE. 6.2 THE OBTAINING FACTUAL MATRIX HAS TO BE TESTED O N THE ANVIL OF THE AFORESAID LEGAL PRINCIPLES. RESULTANTLY, WE UPHOLD THE ORDER OF THE LEARNED CIT(A) AND DISMISS THE ABOVE GROUNDS OF APP EAL. 7. NOW WE TURN TO 5 TH , 6 TH AND 7 TH GROUND OF APPEAL. THEY READ AS UNDER: 5. THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE A.O. HAS NOT BROUGHT ON RECORD ANYTHING SUBSTANTIAL OR COGENT TO SHOW THAT THE APPELLANT HAD NO INTENTION TO HOLD THE SHARE AS INVESTMENT WITHOUT APPRECIATING THAT THE FACT THE DIVIDEND INC OME AND LTCG SHOWN BY THE ASSESSEE DURING THIS PERIOD IS ONLY RS . 58,423/- AND RS. 6,44,932/- RESPECTIVELY AS AGAINST THE RELA TIVELY SUBSTANTIAL AMOUNT OF RS. 20,14,569/- SHOWN AS STCG . 6. THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE A.O. HAS NOT BROUGHT ON RECORD ANYTHING SUBSTANTIAL OR COGENT TO SHOW THAT THE APPELLANT HAD NO INTENTION TO HOLD THE SHARE AS INVESTMENT, WITHOUT APPRECIATING THAT THE SUBSTANTIAL FREQUENT TRANSACTIONS IN NUMBER OF SCRIPS (51 TRANSACTIONS OF 46 DIFFEREN T COMPANIES) CLEARLY POINTED THAT ACTIVITY IN SHARES BY THE ASSE SSEE WAS ADVENTURE IN THE NATURE TRADE. 7. THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT IT CANNOT BE SAID THAT THE APPELLANT WAS ENGAGED IN THE TRADING OF SH ARES OR THAT THE GAINS EARNED FROM SALE OF SHARES IN SHORT TERM REPRESENT BUSINESS INCOME, WITHOUT APPRECIATING THAT THE FACT THAT INCOME UNDER THE HEAD OF BUSINESS AND PROFESSION SHOWN BY THE ASSESSEE IN THE RETURN IS RS. 5,971/- AS AGAINST TH E STCG OF RS. 20,14,569/- WHICH CLEARLY INDICATES THAT THE MAIN A CTIVITY OF THE ASSESSEE DURING THE PERIOD UNDER CONSIDERATION WAS TRADING IN SHARES. 7.1 THE A.O. NOTED THAT THE ASSESSEE HAD SHOWN SHOR T TERM CAPITAL GAINS (STCG) OF RS. 20,14,569/- ON SALE OF SHARES. THE ASSESSEE HAD PURCHASED SHARES / UNITS OF MUTUAL FUNDS OF RS. 44, 52,461/- AND SOLD ITA NO. 5051/MUM/2012 7 THE SAME WORTH RS. 64,67,030/-. ALSO THE AO OBSERVE D THAT (I) DURING THIS PERIOD THE ASSESSEE DEALT IN 46 TRANSACTIONS O F PURCHASE AND SALES (II) NO SHARES OR UNITS OF MUTUAL FUND HAD BEEN HEL D BY THE ASSESSEE AS INVESTMENT (III) THE ASSESSEE HAD ALSO FREQUENTL Y PURCHASED AND SOLD SHARES / UNITS OF MUTUAL FUND AND THE AVERAGE HOLDING PERIOD WAS VERY SHORT AND (IV) THE ASSESSEE HAD RECEIVED M EAGRE DIVIDEND OF RS. 58,423/-. TAKING INTO ACCOUNT THE MAGNITUDE, FR EQUENCY OF SHARE TRANSACTIONS THE A.O. HELD RS. 20,14,569/- AS BUSIN ESS INCOME. 7.2 IN APPEAL, THE LEARNED CIT(A) HAS OBSERVED THAT OUT OF 51 TRANSACTIONS REPORTED, THE HOLDING PERIOD IS AS UND ER: PERIOD OF HOLDING NUMBER OF TRANSACTIONS 30 DAYS OR LESS 15 31 DAYS TO 90 DAYS 15 91 DAYS TO 180 DAYS 15 181 DAYS OR MORE 6 TOTAL 51 THE LEARNED CIT(A) NOTED THAT (I) IN LESS THAN 30% OF THE TRANSACTIONS, THE SCRIPS WERE HELD FOR LESS THAN 30 DAYS, (II) THERE ARE NO REPETITIVE TRANSACTIONS SEEN, IN THE SENSE THAT THE ASSESSEE HAS NOT RE-ENTERED THE MARKET AFTER HAVING DISPOSED OFF HIS EARLIER HOLDING, (III) THERE ARE NO INTRA-DAY TRADE NOR SHORT SELLIN G, (IV) THE ASSESSEE IS NOT OTHERWISE DEALING IN THE BUSINESS OF SHARE TRAD ING OR ALLIED ACTIVITIES AS F&O TRADING. THEREFORE, THE LEARNED C IT(A) DIRECTED THE A.O. TO TREAT THE GAINS FROM THE SALE OF SHARES AS STCG AND ALLOWED THE APPEAL OF THE ASSESSEE. 7.3 BEFORE US, THE LEARNED DR RELIES ON THE ORDER OF THE A.O. WHEREAS THE LEARNED COUNSEL OF THE ASSESSEE RELIES ON THE ORDER OF LEARNED CIT(A). ITA NO. 5051/MUM/2012 8 7.4 HAVING HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD, WE FIND THAT THE ASSESSEE HAS N OT INDULGED IN REPETITIVE TRANSACTIONS. HE HAS NOT RE-ENTERED THE MARKET AFTER HAVING DISPOSED OFF HIS EARLIER HOLDING. THERE ARE NO INTR A-DAY TRADES, NOR SHORT SELLING. THE NUMBER OF SCRIPS TRANSACTED IS A BOUT 46 IN 51 TRANSACTIONS. THE ASSESSEE HAS SHOWN SIMILAR ACTIVI TY IN THE RETURN OF INCOME FILED IN EARLIER ASSESSMENT YEARS. IN VIEW O F THE ABOVE FACTUAL MATRIX, WE UPHOLD THE ORDER OF THE LEARNED CIT(A) A ND DISMISS THE ABOVE GROUNDS OF APPEAL. 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28/04/2017 SD/- SD/- (JOGINDER SINGH) ( N.K. PRADHAN) JUDICIAL MEMBER ACCOUNTANT MEMBE R MUMBAI: DATED: 28/04/2017 BISWAJIT, SR. P.S. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE . BY ORDER, //TRUE COPY// (DY./ASSTT. REGISTRAR) ITAT, MUMBAI